Question

Nash Corporation acquires a coal mine at a cost of $408,000. Intangible development costs total $102,000. After extraction has occurred, Nash must restore the property (estimated fair value of the obligation is $81,600), after which it can be sold for $163,200. Nash estimates that 4,080 tons of coal can be extracted. If 700 tons are extracted the first year, prepare the journal entry to record depletion. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation Debit Credit

Answer 1

deprecition expense 73,500 debit

coal mine-deposit 73,500 credit

Step-by-step explanation:

All necessary cost relateed to the mine should be included:

cost 408,000

development cost 102,000

restoration cost 81,600

Total cost 591,600

Now we subtract our expected salvage value of 163,200

428,400

And calculatethe depletion rate:

428,400 / 4,080 =105 dollar per ton

tons extracted during the first year: 700

700 x $105 each = 73,500